Fran O'Sullivan: Landcorp missed the boat on selling assets

Steven Carden has a two-pronged approach to developing Landcorp.

The political spin machine will again switch into overdrive today when State farmer Landcorp publishes its financial results.

Cabinet ministers have shorted Landcorp's prospects in the public eye by presenting the country's largest farming operation as creaking under such a debt burden that it should sell off some more farms to get its balance sheet into shape.

Chairman Traci Houpapa and CEO Steven Carden have kept their counsel publicly while various politicians -- particularly Finance Minister Bill English and State-Owned Enterprises Minister Todd McClay -- have raised issues about how the company is now "challenged" through the collapse in dairy prices and low profitability.

The SOE certainly needs to "wash its face" when it comes to any of the usual metrics such as return on assets and capital. But it's also pertinent to note the Government did not raise public objections when farmland and prices were inflating at a rapid rate. Clearly, the sensible time to have sold some of its $1.8 billion assets was at the earlier period.

Once the financial results are published, Houpapa and Carden should be free to talk about the company's financial situation on the basis of public information.

The fundamental question that has been unmasked by the "controversy" is what is Landcorp's future?

The SOE has its supporters who argue that it can be a leader in the primary sector by bringing land into farmland, getting greater productivity out of existing farm assets; managing farming estates on behalf of other owners -- including Shanghai Pengxin which was the Chinese company behind the initial purchase of the Crafar farms.

It develops career prospects for its employees and trains future farmers for the agribusiness industry.

Like other agribusinesses, it is a member of Primary Growth Partnerships to develop value-added products -- in this case for red meat, manuka honey and deer.

Carden himself has a two-pronged approach to developing Landcorp. It owns about 137 dairy, beef, sheep and deer farms; has more than 600 permanent employees with some 70 or so at the Wellington HQ. The Landcorp boss said its focus had been on two areas, overhauling its approach to farming and trying to be more market-led by looking beyond the farm gate to what consumers want.

Carden has been on the sensible side of health and safety programmes with former All Black and farmer Richard Loe fronting a campaign.

He is committed to sustainable farming practices for environmental and productive purposes. These cover stocking rates, nutrient applications, scrub regeneration and forestry planning.

But the biggest switch that Carden -- with support from Houpapa -- has brought is to switch emphasis to being a marketing-driven farming partnership, driving branded products to customers at the higher end of the market. Locally, it supplies milk to Fonterra and Synlait and meat to Silver Fern Farms.

It is also pushing into sheep milk production and is looking to create an export market through a joint venture with SLC to set up a marketing company called Spring Sheep Dairy to sell milk powder, probiotic yoghurt and ice cream into Taiwan and Korea next year.

Carden's enthusiasm for marketing is tempered with realism.

He has pointed out a $4.55 swing in the forecast milk price paid to farmers over two seasons shows there's something wrong with New Zealand's dairy model.

Landcorp managed to lock in considerable product at Fonterra's $5.25/kgMS guaranteed milk price for the current season -- this leaves it reasonably well covered.

It's what happens next season, and the season after that has the politicians worried.